Tax changes and benefit cuts mean UK’s poorest families have lost most under coalition

23rd January 2015

The UK’s poorest families with children have lost the most from changes to tax and benefits made by the coalition.

According to figures from the Institute for Fiscal Studies (IFS), the average UK households is £489 a year worse off under the coalition government.

While the tax changes and cuts to benefits have had less of an impact on middle-income families, working age households on low-incomes with children have lost the most as a percentage of income.

Households with children in the lowest 10% of earners have lost £1,223 a year on average due to cuts to means-tested benefits and tax credits.

The richest 10% have also borne a bigger burden this year, losing £5,350 a year on average

James Browne, a senior research economist at the IFS, said: ‘Whichever way you cut it, low-income households with children and the very richest households have lost out significantly from the changes as a percentage of their incomes.

‘Increases in the tax-free personal allowance have played an important role in protecting middle-income working-age households meaning that those without children have actually gained overall.’

The tax and benefits changes that have impacted poorer families the most include an increase in the main rate of VAT, increases in national insurance contributions and a cap on benefits.

The poorest households lost around 4% of their income, according to IFS compared to 3.5% for the next poorest tenth, zero for middle-income families, and a 2.5% loss for the richest.

While many working-age households have suffered, pensioners have been ‘relatively unaffected’, said IFS.

Pensioners have benefitted from a ‘triple lock’ on the state pension, which increases the benefit by the highest of either inflation, average earnings or 2.5%. However, the rise in VAT means the triple lock was largely offset.

The hardest hit area was London, where the average household lost £1,042, followed by south east England, West Midlands and north west England.